RBI keeping watch on inflation, to take step if necessary:FM

Finance Minister Pranab Mukherjee today said the Reserve Bank is keeping a watch on demand factors that fuel inflation and it will make adjustments, if necessary.

"It (RBI) is keeping a watch on the demand side and if it is found that demand side needs to be taken care of and if it is necessary then adjustments will have to be made," Mukherjee said in his reply to a debate on inflation in the Rajya Sabha.

He said RBI is framing its monetary stance in coherence with the Centre's fiscal policies.

"RBI has assured that it does not want to frame monetary policy which is discordant with fiscal policy. That is why, it is making changes in doses," the Finance Minister said.

He appreciated RBI's role in smooth conduct of the government's huge borrowing plan, which did not leave resources dry for the private sector.

The government is slated to borrow over Rs 4.5 lakh crore from markets this fiscal.

In order to control high inflation, RBI in its monetary review on July 27 raised short-term borrowing (reverse repo) rate by 50 basis points and lending (repo) rate by 25 basis points.

It, however, kept cash reserve ratio, a requirement for banks to keep portion of their deposits with the central bank in cash, unchanged due to difficult liquidity position in the markets.

The liquidity was hit due to over Rs one lakh crore outgo to the government for payment of 3G and broadband wireless acess spectrum by telecom companies.